NEST's CY12 capex of INR9.7b (v/s INR15.8b in CY11) largely completes the ongoing capacity expansion drive. It has expanded gross block by 2.4x since CY10 to INR44.3b. Its net leverage has declined 27 percent from 0.48x to 0.25x while its operating cash flow has expanded 46 percent (highest growth in 10 years) to INR16.9b, resulting in highest free cash generation in 10 years. We note that working capital change during CY12 has added a positive swing of INR2.7b to operating cash flows.

We have cut our EPS estimate by 1/1.8 percent for CY13/14. We now estimate EPS growth of 14.6 percent in CY13 and 21 percent in CY14. Recovery in volume growth remains the single critical parameter for NEST's re-rating. At 35.3x CY13E and 29.1x CY14E EPS, we believe valuations are rich amidst slowdown in discretionary processed foods. Maintain Neutral with target price of INR4,900," says Motilal Oswal research eport.

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